Politics 101

Democrats offered Enthusiastic Applause for Unsound Policy Proposals that have no Basis in Reality

President Obama’s 2014 State of the Union address was a little longer than an hour. But if you didn’t look at a clock it felt a lot longer. For it was the same tripe you hear all the time from this administration. And the political left. It was full of misleading statements. Inaccurate facts and figures. And some lies. The usual stuff you expect from the liberal left. But what was really disturbing was the enthusiastic applause for some really unsound policy proposals that have no basis in reality. Showing either how clueless these enthusiastic Democrats are about economics, business, national security, etc. Or how amoral they are in their quest for power. As they judge and implement policy not by how it will improve the lives of Americans. But how it will improve their lives in government.

If there was ever an example of what people not to have in power this state of the union theater was it. Following are excerpts from President Obama’s speech (see FULL TRANSCRIPT: Obama’s 2014 State of the Union address posted 1/28/2014 on The Washington Post). Comments and analysis follow each excerpt.

And here are the results of your efforts: the lowest unemployment rate in over five years; a rebounding housing market — (applause) — a manufacturing sector that’s adding jobs for the first time since the 1990s — (applause) — more oil produced — more oil produced at home than we buy from the rest of the world, the first time that’s happened in nearly twenty years — (applause) — our deficits cut by more than half; and for the first time — (applause) — for the first time in over a decade, business leaders around the world have declared that China is no longer the world’s number one place to invest; America is.

The total number of people who left the civilian labor force since President Obama took office is 11,301,000 (see The BLS Employment Situation Summary for December 2013 posted 1/13/2014 on PITHOCRATES). Which means the unemployment rate is meaningless. The only reason why it’s falling is that the BLS doesn’t count unemployed people who gave up looking for jobs that just aren’t there. Oil production on private land may be up. While overall oil consumption is down because of the Great Recession that just won’t end. Which is helping to keep gas prices down. Unemployed people just don’t have the money to buy gas. So they don’t. Greatly reducing the demand for gas. Thus reducing gas prices and oil imports. George W. Bush’s last deficit was $498.37 billion. President Obama’s first deficit was $1,539.22 billion. And it was over $1 trillion in 2010, 2011 and 2012. It fell to $680 billion in 2013 thanks to the sequester. But the deficit is larger now than when President Obama assumed office. The only reduction in the deficit is a reduction in the amount he increased it.

Now, as president, I’m committed to making Washington work better, and rebuilding the trust of the people who sent us here.

Really? You’re committed to rebuilding the trust of the people? Mr. “If you like your health insurance you can keep your health insurance. Period.” Otherwise known as the lie of the year. You’re going to rebuild the trust of the people? Good luck with that. What with your pants on fire and all.

Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better. But average wages have barely budged. Inequality has deepened. Upward mobility has stalled. The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by; let alone to get ahead. And too many still aren’t working at all.

Well, finally something Republicans can agree with the president about. Yes, his economic policies have benefitted Wall Street. While hurting Main Street. Finally some bipartisan agreement.

So let’s make that decision easier for more companies. Both Democrats and Republicans have argued that our tax code is riddled with wasteful, complicated loopholes that punish businesses investing here, and reward companies that keep profits abroad. Let’s flip that equation. Let’s work together to close those loopholes, end those incentives to ship jobs overseas, and lower tax rates for businesses that create jobs right here at home. (Cheers, applause.)

There are only a few reasons why businesses export jobs. And the big three are taxes, regulations and labor costs. The Obama administration wants to raise taxes. They’ve increased regulatory costs. And they support costly union labor. So everything they stand for encourages businesses to export jobs.

But — but I’ll act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible. (Applause.)

So how’s that approval for the Keystone XL pipeline coming along? That thing you’ve been studying since 2010? Which by the laws of arithmetic is approximately 4 years ago. Is this slashing bureaucracy and streamlining the permitting process? At this rate it would probably be quicker to elect a Republican president in 2016. You know, someone who, when it comes to economic activity, walks it while the Democrats only talk it.

We also have the chance, right now, to beat other countries in the race for the next wave of high-tech manufacturing jobs. And my administration’s launched two hubs for high-tech manufacturing in Raleigh, North Carolina, and Youngstown, Ohio, where we’ve connected businesses to research universities that can help America lead the world in advanced technologies.

Universities are in the grant business. They want as many grants as they can get to help bring money into the university. And to do so they will study anything the government wants them to. No matter how wasteful it is. While some of the biggest high-tech companies started in garages. Apple, Google, Hewlett Packard and Microsoft. To name a few. Yes, there is a lot of university-driven research. But the big innovation is more entrepreneurial. Created by people thinking up new stuff no one thought of yet. Which is the last thing you want government involved in. That same government that can’t build a website using 1990s technology.

Let’s do more to help the entrepreneurs and small business owners who create most new jobs in America. Over the past five years, my administration has made more loans to small business owners than any other. And when 98 percent of our exporters are small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create even more jobs. We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment and open new markets to new goods stamped “Made in the USA.” (Applause.)

You want to help entrepreneurs and small business? Get rid of Obamacare. And slash tax rates. This will provide incentive. And allow them to reinvest more of their earnings to grow their business. Allowing them to create those jobs.

Now, one of the biggest factors in bringing more jobs back is our commitment to American energy. The “all the above” energy strategy I announced a few years ago is working, and today America is closer to energy independence than we have been in decades. (Applause.)

‘All of the above’ as long as it isn’t coal, oil or nuclear. But if it’s solar power and wind power they are committed to giving more tax dollars to their friends and bundlers in the green energy industry.

Meanwhile, my administration will keep working with the industry to sustain production and jobs growth while strengthening protection of our air, our water, our communities. And while we’re at it, I’ll use my authority to protect more of our pristine federal lands for future generations. (Applause.)

You can’t sustain production and jobs growth by strengthening protection of our air, water and pristine federal lands. That’s just more regulatory costs. And raising energy costs by not allowing any oil or natural gas production on those pristine federal lands. Raising energy costs by restricting supply. Which raises business costs. In addition to those new regulatory costs.

Every four minutes another American home or business goes solar, every panel pounded into place by a worker whose job can’t be outsourced. Let’s continue that progress with a smarter tax policy that stops giving $4 billion a year to fossil fuel industries that don’t need it so we can invest more in fuels of the future that do. (Cheers, applause.)

That says it all. Fossil fuels don’t need subsidies because their costs are affordable. While solar (and wind power) are so costly that they are unaffordable. Unless government heavily subsidizes them.

But the debate is settled. Climate change is a fact. (Applause.) And when our children’s children look us in the eye and ask if we did all we could to leave them a safer, more stable world, with new sources of energy, I want us to be able to say yes, we did. (Cheers, applause.)

There is no such thing as settled science. Only science that has yet to be disproved. Besides, once upon a time glaciers stretched down from the poles to near the equator. And then receded back to where they are now. All without any manmade carbon in the atmosphere to warm the planet. As we were still simple hunter and gatherers then. So if the glaciers moved more before there was manmade global warming they’ll move again regardless of what man is doing to warm the planet.

Finally, if we’re serious about economic growth, it is time to heed the call of business leaders, labor leaders, faith leaders, law enforcement — and fix our broken immigration system. (Cheers, applause.) Republicans and Democrats in the Senate have acted, and I know that members of both parties in the House want to do the same. Independent economists say immigration reform will grow our economy and shrink our deficits by almost $1 trillion in the next two decades. And for good reason: When people come here to fulfill their dreams — to study, invent, contribute to our culture — they make our country a more attractive place for businesses to locate and create jobs for everybody. So let’s get immigration reform done this year. (Cheers, applause.) Let’s get it done. It’s time.

Funny how that argument doesn’t apply to birth control and abortion. The reason we need to “fix our broken immigration system.” For if we were having babies at the rate when government created the welfare state we could pay for that welfare state today. But thanks to the Sixties, birth control, abortion and feminism women stopped having babies. Which is fine if a woman doesn’t want to. But the progressives designed the welfare state based on them being baby machines. Creating a greater number of taxpayers with each generation. So more people pay into the welfare state than collect from it. The way it must be for a Ponzi scheme to work.

That’s why I’ve been asking CEOs to give more long-term unemployed workers a fair shot at new jobs, a new chance to support their families. And in fact, this week many will come to the White House to make that commitment real.

When you raise the cost of labor (union labor, Obamacare, etc.) businesses tend to look at automating production instead of hiring that costly labor. They may not be able to do anything about the higher regulatory costs but they can do something about higher labor costs. Use more machines than people. If you want CEOs to create new jobs stop making labor so costly. And you can start with getting rid of Obamacare.

Of course, it’s not enough to train today’s workforce. We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education. (Applause.)…

Five years ago we set out to change the odds for all our kids. We worked with lenders to reform student loans, and today more young people are earning college degrees than ever before. Race to the Top, with the help of governors from both parties, has helped states raise expectations and performance. Teachers and principals in schools from Tennessee to Washington, D.C., are making big strides in preparing students with the skills for the new economy — problem solving, critical thinking, science, technology, engineering, math.

Yes, more kids are going to college than ever before. But they’re going there to have fun. And to facilitate their fun many are getting easy, worthless degrees in the social sciences and humanities. Costly degrees that universities sold them promising them future riches. Enriching the university. While impoverishing their graduates. For a high-tech company has no use for these degrees. Which is why a lot of these people end up in jobs they didn’t need that costly degree to do. And our high-tech companies are using the visa program to get foreigners who have the skills they want. Problem solving, critical thinking, science, technology, engineering and math.

It requires everything from more challenging curriculums and more demanding parents to better support for teachers and new ways to measure how well our kids think, not how well they can fill in a bubble on a test. But it is worth it — and it is working.

If you want kids to do better we need to champion marriage and family more. And they should embrace religion a little more. Instead of encouraging our young women to use birth control and abortion to avoid marriage and family. And pulling every last vestige of religion from our lives. Kids growing up in a household with a mother and a father who go to church do far better on average than kids growing up in a single-parent household and don’t go to church (see Strong families steeped in Conservative Values and Traditions do Well in America posted 1/11/2014 on PITHOCRATES).

Research shows that one of the best investments we can make in a child’s life is high-quality early education. (Applause.) Last year, I asked this Congress to help states make high-quality pre-K available to every 4-year-old. And as a parent as well as a president, I repeat that request tonight.

Actually, research doesn’t show that. Yet they keep saying that. For it’s like that line in the musical Evita, “Get them while they’re young, Evita. Get them while they’re young.” The sooner they can take them away from their parents the sooner they can start turning them into Democrat voters. Such as teaching them to blame their parents for the manmade global warming that is killing the polar bears as they have no ice to rest on while eating their baby seals.

You know, today, women make up about half our workforce, but they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.

Women deserve equal pay for equal work. (Cheers, applause.)

Actually, it’s closer to 91 cents (see The White House’s use of data on the gender wage gap by Glenn Kessler posted 6/5/2012 on The Washington Post). And the small difference is not due to discrimination but personal choice. When you look at aggregate wages women will make less than men. Because more women are teachers (with 3 month off without pay) than men are. Some women work fewer hours at work to spend more time with their children. While men tend to work more overtime. Men also work the more dangerous and higher paying jobs. And are more likely to belong to a union. When you compare childless, single men and women with a college degree some women are actually earning more than men. Figures don’t lie but liars figure. And for the contortions the Obama administration did here The Washington Post’s The Fact Checker gave the president one Pinocchio.

Now, women hold a majority of lower-wage jobs, but they’re not the only ones stifled by stagnant wages. Americans understand that some people will earn more money than others, and we don’t resent those who, by virtue of their efforts, achieve incredible success. That’s what America’s all about. But Americans overwhelmingly agree that no one who works full-time should ever have to raise a family in poverty. (Applause.)

In the year since I asked this Congress to raise the minimum wage, five states have passed laws to raise theirs.

You’re not going to have a lot of upward mobility when you pay people more to remain in the jobs they hate. All the talk about making college more affordable and bringing employers and community colleges together to help give people the skills they need to fill the jobs employers have is all for nothing if they just pay people more for doing an entry-level job.

Let’s do more to help Americans save for retirement. Today most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s. That’s why tomorrow I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a — it’s a new savings bond that encourages folks to build a nest egg.

Once upon a time people opened a savings account at their local bank and they saved to buy a house. And they saved for their retirement. That’s how people saved when they didn’t have a pension or a 401(k). They can’t do that today because of the Federal Reserve destroying the banking industry by keeping interest rates at zero. If the Fed stopped printing money and let investment capital come from our savings like they did before the Keynesians gave us the Federal Reserve people would be saving like we once did. And we’d stop having Great Depressions, stagflation and Great Recessions. Created by their prolonging the growth side of the business cycle. Which raises prices higher than they normally would go. Making the contraction side of the business cycle that much more painful. As those prices have a much longer way to fall than they normally would. Thanks to the Fed’s meddling with interest rates.

MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little or nothing for middle-class Americans, offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.

You know why they want these MyRAs? Because they can’t stand people saving money. They love Social Security. Because they can borrow from the Social Security Trust Fund. Which is what they will do with these MyRAs. They will take this money and spend it. Filling the MyRA Trust Fund with a bunch of IOUs. Just like they do with the Social Security Trust Fund. And then provide a retirement benefit like Social Security. That is too small to live on. Whereas if we saved the money ourselves our retirement nest-egg will be much larger. And it will provide for our retirement. Unlike Social Security.

And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations. (Applause.)

It was Bill Clinton that set the stage for the subprime mortgage crisis with his Policy Statement on Discrimination in Lending (see Bill Clinton created the subprime mortgage crisis with his Policy Statement on Discrimination in Lending posted 11/6/2011 on PITHOCRATES). Using the heavy hand of government to get lenders to qualify the unqualified. Then the Fed’s artificially low interest rates were the bait for the trap. Enticing people to borrow huge sums of money because those interest rates were just too good to pass up. Even if they weren’t planning to buy a house to begin with. The subprime mortgage crisis and the resulting Great Recession were government made. If we want to prevent the taxpayers from footing the bill for another housing crisis we need to get the Keynesians out of government.

Already, because of the Affordable Care Act, more than 3 million Americans under age 26 have gained coverage under their parents’ plans. (Applause.)

More than 9 million Americans have signed up for private health insurance or Medicaid coverage — 9 million. (Applause.)

The Washington Post gave this lie three Pinocchios (see Warning: Ignore claims that 3.9 million people signed up for Medicaid because of Obamacare by Glenn Kessler posted 1/16/2014 on The Washington Post). For they’re counting some 3.9 million who would have signed up anyway for Medicaid regardless of the Affordable Care Act. Also, the government was counting people who put a health care plan into their shopping cart as if they signed up for it. Which many couldn’t. As they haven’t programmed the back end of the health care website yet to actually accept payment or to pass that information on to the insurers.

And here’s another number: zero. Because of this law, no American, none, zero, can ever again be dropped or denied coverage for a pre-existing condition like asthma or back pain or cancer. (Cheers, applause.) No woman can ever be charged more just because she’s a woman. (Cheers, applause.) And we did all this while adding years to Medicare’s finances, keeping Medicare premiums flat and lowering prescription costs for millions of seniors.

That’s right. Women with reproductive systems that men don’t have won’t pay more for their health insurance than men pay for theirs. How can they do that? Simple. They just are charging men more. To cover the cost of a reproductive system they don’t have.

Citizenship means standing up for the lives that gun violence steals from us each day. I have seen the courage of parents, students, pastors, and police officers all over this country who say “we are not afraid,” and I intend to keep trying, with or without Congress, to help stop more tragedies from visiting innocent Americans in our movie theaters and our shopping malls, or schools like Sandy Hook. (Applause.)

If you take away guns from law-abiding gun owners that won’t keep dangerous people with mental health issues that want to harm people out of our movie theaters, our shopping malls or schools like Sandy Hook. For there are other ways to harm people. Just look at the Boston Marathon bombers. The people he’s talking about not only had mental health issues but they were also smart. Many were even college students. Who probably could think of other ways to hurt people. And you just can’t take away everything they might use to harm people. But you can place these people somewhere where they can’t harm anyone.

You see, in a world of complex threats, our security, our leadership depends on all elements of our power — including strong and principled diplomacy. American diplomacy has rallied more than 50 countries to prevent nuclear materials from falling into the wrong hands, and allowed us to reduce our own reliance on Cold War stockpiles.

Since President Obama assumed office he did nothing to support the Green Revolution in Iran. Which kept the hard-line Islamists in power there. He gave Egypt to the Muslim Brotherhood by telling Hosni Mubarak that he had to go. Removing the stable anchor of the Middle East. And moved Egypt closer to Iran. (The Egyptian people eventually rose up to overthrow the oppressive Muslim Brotherhood). He went to war in Libya and helped to overthrow Colonel Muammar Qaddafi. Who at the time was a quasi ally in the War on Terror. After the Iraq invasion frightened him into believing he may be next. President Obama was thanked for his Libyan war by al Qaeda with 4 dead Americans in Benghazi on the anniversary of 9/11. He waited too long to act in the Syrian civil war. Which only brought al Qaeda into the conflict. He failed to attain a status of forces agreement in Iraq. So he pulled all U.S. forces out of Iraq which has only invited al Qaeda in. And it looks like this will be repeated in Afghanistan. He blamed George W. Bush’s wars as recruitment tools for al Qaeda. While his extensive drone use is doing the same thing. Especially in Yemen. The hotbed of al-Qaeda in the Arabian Peninsula. All that his diplomacy and leadership has done was to make the world a more dangerous place.

American diplomacy, backed by the threat of force, is why Syria’s chemical weapons are being eliminated. (Applause.) And we will continue to work with the international community to usher in the future the Syrian people deserve — a future free of dictatorship, terror and fear.

His diplomacy with Bashar al-Assad in Syria only gave his oppressive regime legitimacy in the civil war he was raging against his people. Making it easier for Assad to kill Syrians with conventional arms while he gives up a token amount of his chemical weapons. While also making Russia who brokered the deal the dominate player in the region.

And it is American diplomacy, backed by pressure, that has halted the progress of Iran’s nuclear program — and rolled back parts of that program — for the very first time in a decade. As we gather here tonight, Iran has begun to eliminate its stockpile of higher levels of enriched uranium.

It’s not installing advanced centrifuges. Unprecedented inspections help the world verify every day that Iran is not building a bomb. And with our allies and partners, we’re engaged in negotiations to see if we can peacefully achieve a goal we all share: preventing Iran from obtaining a nuclear weapon. (Applause.)

All Iran is doing is pausing their program. And chemically altering some of their enriched uranium to meet the requirements of this diplomatic deal. But this chemical process is reversible. And they will reverse it once they get what they want. This deal makes the world no safer. If anything it makes it more dangerous. For it does not diminish the Iranian nuclear program in the least. But gives them more time to work on it as they prop up their regime with much needed supplies thanks to a relaxation of the sanctions against them.

These negotiations will be difficult; they may not succeed. We are clear-eyed about Iran’s support for terrorist organizations like Hezbollah, which threaten our allies; and we’re clear about the mistrust between our nations, mistrust that cannot be wished away. But these negotiations don’t rely on trust; any long-term deal we agree to must be based on verifiable action that convinces us and the international community that Iran is not building a nuclear bomb. If John F. Kennedy and Ronald Reagan could negotiate with the Soviet Union, then surely a strong and confident America can negotiate with less powerful adversaries today. (Applause.)

The sanctions that we put in place helped make this opportunity possible. But let me be clear: if this Congress sends me a new sanctions bill now that threatens to derail these talks, I will veto it. (Applause.) For the sake of our national security, we must give diplomacy a chance to succeed.

The Soviet Union never attacked U.S. soil. And there was a reason they didn’t. They were rational. And knew they would lose a great deal in a war with America. Especially a nuclear one. Which is why they never used their nuclear weapons. But Iran giving a nuclear weapon to a shadowy group that is not a state? With little to lose in using a nuclear weapon? If it’s not a nuclear missile there will be no way in knowing where the nuclear bomb came from. We can have our suspicions that Iran made it and gave it to someone. But do we nuke Iran over that? What if there are more nukes in the hands of al Qaeda, Hezbollah, al-Qaeda in the Arabian Peninsula, etc.? You could nuke Iran back to the Stone Age but it won’t stop those others being used. The president insists this will not happen as Iran signed an agreement. The only problem with that is the Iranians are liars. And they call the United States the Great Satan. These two facts suggest that replacing those sanctions with a promise not to build nuclear bombs was probably not a wise trade.

But for more than two hundred years, we have put those things aside and placed our collective shoulder to the wheel of progress: to create and build and expand the possibilities of individual achievement; to free other nations from tyranny and fear; to promote justice and fairness and equality under the law, so that the words set to paper by our founders are made real for every citizen.

Use our collective shoulder to expand individual achievement? The president believes in the former more than the latter. He didn’t help the Iranians get free from tyranny when he had the chance. And he turned the Egyptian people over to tyranny. The Muslim Brotherhood. Who were oppressing women and Christians. Fairness and equality under the law? Ask those Tea Party groups who were targeted by the IRS about fairness and equality under the law. The Constitution? That document of negative rights? The left hates it. And insists it’s a living document that can evolve over time to suit the needs of an expanding government. So they can do exactly what the Founding Fathers wrote the Constitution to prevent from happening.

The Left endorses Unsound Policy Proposals with no Basis in Reality to improve their Chances of Winning Elections

The country is more conservative than liberal (see Liberal Self-Identification Edges Up to New High in 2013 by Jeffrey M. Jones posted 1/10/2014 on Gallup). Which is why liberals want state-funded pre-K to start indoctrinating our children as soon as possible. To get them away from their parents so they can begin the process of turning them into Democrat voters. It’s why kids are getting worthless social science and humanities degrees. To further indoctrinate them. Because their views are minority views. So they need to play loose with the facts. And lie. Which is easier to do with indoctrinated kids than educated adults. You’ll even hear Democrats talk about lowering the voting age. To get a few more years of voting out of these kids before they grow old and wise. And begin voting conservative. So they do what they can to dumb down education. Lie. Cheat. And buy as many votes as they can by giving away free stuff. And the thing they really want to give away is citizenship for illegal aliens. Who they are sure will be forever grateful. And show it by voting Democrat.

This explains the enthusiastic applause for unsound policy proposals that have no basis in reality. For the left is not interested in improving the lives of Americans. They just want to improve their chances of winning elections.

Week in Review

The American left likes to hold up the Canadian health care system as the ideal system. It’s what they wanted when they reluctantly accepted Obamacare. A single-payer health care system. Or national health care. Because those on the left believe the quality of a national health care system far exceeds anything a for-profit insurance company will pay for. As they deny whatever they can to force people into a third-world health care system. Where only the rich who can afford to pay for the best get the best. Interestingly, it appears that’s happening in Canada, too. Where those who can afford to are traveling elsewhere for their health care instead of entering their own Canadian system (see Canadians Leave Their Country For Better Health Care posted 1/22/2014 on Investors).

According to data from the Canadian Institute for Health Information, as many as 41,838 Canadians — out of a population of about 35 million — left the country last year for health care treatment. More than 42,000 left in 2012, while more than 46,000 sought treatment elsewhere the year before.

Destinations, according to a University of Minnesota study that looked at Canadian companies that arrange medical tourism, include Costa Rica, India, Thailand and the U.S. Some companies even send clients to Mexico, Turkey, Poland and the Dominican Republic.

The Fraser Institute of Canada calls the 2013 figure a conservative estimate and, though some will argue otherwise, believes it is a sizable number, one that says something deeply damning about Canadian care…

“One of the unfortunate realities of Canada’s monopolistic health care system is that some people feel they have no choice but to seek the care they need outside the country,” Esmail and Bacchus Barua wrote in an op-ed published last month in a couple of Canadian newspapers. “And who can blame them..?”

Some leave due to Canada’s long and sometimes deadly waiting periods. Others are treated outside the country because there is “a lack of available resources or the fact that some procedures or equipment are not provided in their home jurisdiction,” Esmail and Barua wrote.

If you want to know who has the best health care system just look at the direction of medical tourism. And people traveling for their health care aren’t going to Canada. They’re going to Costa Rica, India, Thailand, the United States, Mexico, Turkey, Poland and the Dominican Republic. But they’re not going to Canada. Even some Canadians refuse their own health care system. So do these countries have better health care systems? Not necessarily.

In an episode of Breaking Bad when Gus went to Mexico to deliver Jesse to the Cartel to cook for them he turned the tables on the cartel. He poisoned the members of the Cartel with a gift bottle of tequila. A bottle Gus was the first to drink from. To prove it was safe to drink. Of course he took precautions to prevent himself dying from drinking the poisoned tequila. Including a makeshift emergency room in an abandoned building near the US-Mexican border. Even stocked with bags of blood matched to the blood types of the three who traveled to Mexico. They saved Gus from the poison. And Mike from a near-fatal gunshot wound.

This was quality health care in the middle of nowhere. Paid for with private money. Albeit drug money. But the health care providers were making more there than they could in the regular health care system. Providing them incentive. Which all of these medical tourism destinations offer. Incentive to health care workers to work outside of the regular health care system. Because they can earn more in a private health care system. Which is why the best health care talent migrates to private health care systems. Because when people pay out of pocket there’s more money to pay for the best health care. And to pay the best health care salaries and wages. Everyone wins in the private system. Patients. And health care providers. The only losers are those stuck in their own national health care system while they wait for their ‘free’ health care.

Economics 101

Because Obamacare Insurance pays for everything Under the Sun it is anything but Insurance

Do you know what the problem is with health care? Insurance plans that give away free flu shots. Not that flu shots are bad. They’re not. And it’s a good thing for everyone to get one every year at the onset of the flu season. For it does seem to limit the spread of the flu virus. It’s because we get a flu shot every year is why insurance shouldn’t pay for it. Because we know about this expense. And we can budget for it. Just like we can budget for our monthly cellular bill. Which is in most cases more than ten times the cost of one annual flu shot.

When Lloyds of London started selling marine insurance at that coffee shop they were selling insurance. Not welfare. Losing a ship at sea caused a huge financial loss. And shippers wanted to mitigate that risk. So every shipper paid a SMALL premium to protect against a LARGE loss. A POTENTIAL sinking and loss of cargo. Not every ship sank, though. In fact, most ships did not. Which is why that little bit from everyone was able to pay the financial loss of the few shippers that lost their ship and cargo. But that’s all that Lloyd’s of London paid for. They didn’t pay a dime to shippers whose ships didn’t sink. No, those shippers paid every cent they incurred (crew, food, rum, etc.) to ship things across those perilous oceans. Because they could expect those costs. And they could budget for them.

This is how insurance works. Which isn’t how our current health insurance system works. No. Today people don’t want to pay for anything out-of-pocket. Not the unexpected catastrophic costs. Or the EXPECTED small costs that everyone can budget for in their personal lives. Like an annual flu shot. Childhood vaccinations. Annual checkups. Childbirth. Etc. Even the unexpected things that aren’t that expensive. Like the stitches required when a child falls off of a bike. Things that would cost less than someone’s monthly cellular bill. Or things that people can plan and save for. Like a house. A car. Or a child. Which is why Obamacare insurance is not insurance. It pays for way too many expected costs that we can budget for. And because it does it only increases the cost of our health insurance policies. Which are now anything but insurance.

Free Market Forces and Insurance for Catastrophic Costs will Fix any Problems in our Health Care System

When we pay these things out-of-pocket there are market forces in play. For a doctor is not going to charge someone they’ve been seeing for years as much as he will charge a faceless insurance company. Even today some doctors will waive some fees to help some of their long-time patients during a time of financial hardship. Because there is a relationship between doctor and patient. And they want to help. Which is why they sometimes overcharge insurance companies to recover costs they can’t recover in full from other patients. (Which is why insurance companies are vigilant in denying overbillings). Especially those things government pays for. Medicaid. And Medicare. Which the government discounts. Leaving health care providers little choice but to overbill others to pay for what the government does not.

When we pay out-of-pocket doctors can’t charge as much. Because they need patients. If they charge too much their patients may find another good doctor that charges a little less. Perhaps a younger one trying to establish a practice. These are market forces. Just like there are everywhere else in the economy. Even a cancer patient requiring an expensive miracle drug benefits from market forces. If there was true insurance in our health care system, that is. Cancer is an unexpected and catastrophic cost. But not everyone gets cancer. Just as every ship does not sink. Everyone would pay a small fee to insure against a financial loss that can result from cancer. Where that little bit from everyone buying a catastrophic health insurance policy was able to pay the financial loss of the unfortunate few that require cancer treatment. Even one including a costly miracle drug. Because only a few from a large pool would incur these financial losses insurers would compete against other insurers for this business. Just like they do to insure houses. And ships crossing perilous oceans.

Health care would work better in the free market. It doesn’t today because government changed that. Starting with FDR putting a ceiling on wages. Which forced employers to offer generous benefits to get the best workers to work for them when they couldn’t offer them more pay. This was the beginning. Now the health insurance industry is so bastardized that it doesn’t even resemble insurance anymore. It’s just a massive cost transfer from one group of people to another. Instead of a pooling of money to insure against financial risk. For the few unexpected and catastrophic costs we cannot afford or budget for to pay out-of-pocket.

Because our Health Care System is the Most Expensive in the World it is the Best in the World

The American health care system is the finest in the world. When you have a serious health care issue and you have the wherewithal there’s only one place you’re going for your medical care. The United States. And the best costs. And it’s because it is so costly that people enter into the health care industry to do wonderful things. Such as pharmaceutical companies. Who many rail against for charging so much for the miracle drugs only they produce. It’s a free country. Anyone could have created that miracle drug. All they had to do was to spend a boatload of money for years on other drugs that were losers. Until they finally found one that wasn’t a loser. That’s all you had to do. Yet few do it. Why?

Because creating miracle drugs is an extremely expensive and often futile endeavor. Which is why we award patents to the few who do. Which is the only reason they pour hundreds of millions of dollars into research and development and pay massive liability insurance premiums for taking a huge risk to put a drug onto the market that may harm or kill people. They do this on the CHANCE that they may develop at least one successful drug that will pay for all of the costs incurred to develop this one drug, the costs for the countless drugs that failed AND provide a profit for their investors. Who took a huge risk in paying their employees over the many years it took to come up with at least one drug that wasn’t a loser. Their investors do this only because of the CHANCE that this pharmaceutical will develop that miracle drug that everyone wants. But most don’t. And investors just lose their investment. But it’s the only way miracle drugs become available to us. Because of rich investors who were willing to risk losing huge amounts of money.

This is what the profit incentive gives us. The best health care system in the world. Why the countries based on free market capitalism have the finest health care systems in the world. And why North Korea, Cuba, the former East Germany, the former Soviet Union, Venezuela, etc., have never given us miracle drugs. There never was an economic incentive throughout the economy to do so. Like there is in countries with free market capitalism. Where everyone at every level pursues profits that result overall in a pharmaceutical industry that produces these miracle drugs.

There is an expression that says you get what you pay for. Our health care system is the most expensive in the world. And because it is it is the best in the world. Trying to inhibit the profit incentive for research and development and forcing medical providers to work for less (steeper Medicaid, Medicare and now Obamacare discounts) will change that. Because you do get what you pay for. And those who live/have lived in North Korea, Cuba, the former East Germany, the former Soviet Union, Venezuela, etc., can attest to.

Fundamental Truth

Stores used the Incentives of Black Friday to get People to do what they Wanted

A belated happy Thanksgiving. And a belated happy Black Friday. We say belated because Black Friday was already here by the time Friday woke from its sleepy slumber. No more waiting in line Friday morning for those stores to open. No. Today if you snooze (i.e., spend Thanksgiving with the family at home) you lose. Because it’s first come first served. Which means if you wanted to get some of those deep discounts before they run out you didn’t let anything silly like celebrating Thanksgiving with the family get in your way.

Now everyone loves a bargain. It’s why we scan the Sunday sales papers. And search online for the best price. But in the Obama ‘recovery’ there isn’t a whole lot of spending going on. As there isn’t a whole lot of employment going on. Since President Obama assumed office his policies have destroyed some 10 million jobs. And one thing about unemployed people. They definitely want a bargain. Especially if they want a good Christmas for their family during the dark times of the Obama presidency.

But there is a greater lesson Black Friday can tell us other than President Obama is a bad president. Especially in things economic. Why are stores opening on Thanksgiving? Because they’re cruel and evil forcing their workers to slave away during a holiday? No. It’s not that. In fact, some employees love working on a holiday. For they get paid more working on a holiday than they normally would. Allowing them to earn extra money to give their families a good Christmas during the dark times of the Obama presidency. As it turns out shoppers and workers alike like Black Friday. For it allows each to have more for less. And that is the great lesson of Black Friday. Getting people to do what you want by offering them something they want. Or, in other words, offering them an incentive.

Slaves working in the planter South had no desire to be slaves. Yet they were slaves. Why? There weren’t slaves in the North. Only in the South. The blacks in the north chose not to be slaves. While those in the South had no choice. The planter elite in the South, the ‘Old World’ planter aristocracy, used force. And having a larger force in Washington than they normally would have (thanks to the Three-Fifths Compromise that counted slaves as three-fifths of a person for representation in Congress) they were able to use the force of government to continue to force blacks into slavery. The Southern Democrats (i.e., the ‘Old World’ planter aristocracy) were able to keep the black man enslaved until the mid 19th century. Even using the power of the federal government to override states’ rights in the North. Using the Fugitive Slave Act to force northern states to return fugitive slaves to their Southern Democrat owners. The ‘Old World’ planter aristocracy.

This is coercion. This is how you get people to do what they don’t want to do. Using the power of the federal government the Southern Democrats kept their slaves in bondage. Also, using the power of the federal government they forced those in the North who wanted to help ‘fugitive’ slaves to stay free return their slaves or else. That ‘or else’ being the full weight of the federal government coming down on them with extreme prejudice. But when the North became more populated control of the House of Representatives favored the larger populated North. Despite the Three-Fifths Compromise. Which left the Senate. And as each state got two senators how the new states entered the union mattered. For the planter elite to hold their power over the United States.

The Missouri Compromise of 1820 was an early attempt to put slavery onto the path of oblivion. Those in the North did not want it. The planter elite in the South did. So they compromised. Slavery could remain in the South to appease the planter elite but the compromise prohibited slavery in the new Louisiana Territory that Thomas Jefferson purchased above the 36°30′ parallel (about the southern border of Missouri). Except in the state of Missouri. Then came the Kansas–Nebraska Act of 1854 and the idea of popular sovereignty. Throwing the Missouri Compromise of 1820 out the window. These two states were both above the 36°30′ parallel. The Kansas–Nebraska Act of 1854 said the first people into the fledging states could choose for themselves if they would be a slave-state or a free-state. Which led to a mad rush to Kansas. And a bloody civil war there. That eventually led to the American Civil War. To settle once and for all the issue of slavery in America. Would the Southern Democrats prevail and keep the black man in bondage? Or would the Republicans free the slaves?

Obamacare is less like Black Friday and more like Slavery

Even if you flunked your history class you should know the answer to this. Abraham Lincoln and his Republicans defeated the Southern Democrats and won the American Civil War. Freeing the slaves. Of course, the Southern Democrats were not good losers. They gave us the KKK. Then the Jim Crowe Laws. The separate but equal nonsense that didn’t exist in the Republican North. The old southern aristocracy were not huge fans of the Declaration of Independence or the Constitution. All they wanted was privilege. They wanted the Old World in the New World. And the planter elite fought bitterly to keep that. Well, not them as much as their fellow southerners they lied to about states’ rights. Getting them (most of who were too poor to own a single slave) to fight and sacrifice their lives to maintain the institution of slavery. To maintain the privilege of the southern aristocracy.

So there you have examples of incentive and coercion. Black Friday incentivized people to hire in for seasonal jobs during the holiday season. And brought people into stores with deep discounting. Everyone got something they wanted. And so they did what the store owners wanted. People worked for them on Thanksgiving. And people came into the stores on Thanksgiving. Both of their own free will. Now contrast that to slavery. Where there was no free will. Only the coercion of the federal government. Where fear and intimidation compelled slaves to remain slaves. And their only incentive was to obey their masters to avoid physical harm.

With the Supreme Court ruling the penalty of Obamacare became a tax. Allowing the federal government to compel people to buy health insurance or suffer the consequences. A ‘tax’ that will grow in time. Buy insurance or else. With that ‘or else’ being the full force and fury of the IRS. Something most people would find more unpleasant than a colonoscopy. Without any anesthetic. No, a letter from the IRS is something no one wants to see in their mail. For few things will fill you with fear and dread more. This is the enforcement mechanism of Obamacare. Which they need because people otherwise wouldn’t spend more for less. Higher insurance premiums to cover things they will never need (a gay man will never need prenatal care). And sky-high deductibles that will be like having no insurance. As everything will be out of pocket until you reach that sky-high deductible. Which few people will reach unless they have a catastrophic illness or accident. This is why people are NOT signing up for Obamacare. Because Obamacare ain’t no Black Friday. Obamacare is offering nothing the people want. At prices higher than they ever had to pay for health insurance before. Leaving them with less to spend on their family. Forcing them to cut out things they once enjoyed. Which is why Obamacare will fail. Because you can’t incentivize people to make their lives worse. No, to do that you need the fearful power of the state. Just like the Southern Democrats used to maintain the institution of slavery.

Economics 101

(originally published August 6, 2012)

Keynesians believe if you Build Demand Economic Activity will Follow

People hate catching a common cold. And have long wanted a cure for the common cold. For a long time. For hundreds of years. But no one had ever filled this incredible demand. All this time doctors and scientists still haven’t been able to figure that one out. Despite knowing with that incredible demand, and our patent rights, whoever does figure that one out will become richer than Bill Gates. Which is quite the incentive for figuring out the ingredients to make one little pill. So why hasn’t anyone found the cure for the common cold?

There are many reasons. But let’s just ignore them. Like a Keynesian economist ignores a lot of things in their economic formulas. In fact, let’s try and enter the head of some Keynesian economists. And have them answer the question why there isn’t a cure for the common cold. Based on their economic analysis you might hear them say that we have a cure for the common cold. Because a high demand makes anything happen. Or you might hear them say we don’t have a cure because enough people haven’t caught a cold yet. And that we need to get more people to catch colds so we increase the demand for a cure.

Keynesians believe if you build demand economic activity will follow. Like in that movie where they build a baseball diamond in a cornfield and those dead baseball players come back to play on it. So Keynesians believe in government spending. And love stimulus spending. As well as taxing people to give their money to other people to spend. Because having money to spend stimulates demand. Consumers will consume things. And increase consumption. So suppliers will bring more things to market. And create more jobs to meet that consumption demand. Unless people save that money. Which is something Keynesians hate. Because saving reduces consumption. Which is about the worst thing you could do in the universe of Keynesian economics. Save money. For in that universe spending trumps saving. In fact, spending trumps everything. No matter how you create that spending. Keynesians actually believe taxing people so they can pay other people to dig a ditch and then fill that ditch back in stimulates economic activity. Because these ditch diggers/fillers will take their paycheck and spend it.

Today People wait Anxiously for the next Apple Release to Learn what the Next Thing is that they Must Have

Of course there is a problem with this economic theory. When you take money away from others they haven’t created new economic activity. They just transferred that spending to someone else. The people who earned that money spend less while the people who didn’t earn it spend more. It’s a wash. Some spending goes down. While some spending goes up. Actually there is a net loss in economic activity. Because that money has to pass through government hands. Where some of it sticks. Because bureaucrats have to eat, too. So the people receiving this money don’t receive as much as what was taxed away. So Keynesian stimulus doesn’t really stimulate. It actually reduces economic activity from what it might have been. Because of the government’s cut.

And it gets worse. Because this consumption demand doesn’t really create jobs. We get nothing new out of it. What do people demand? Things they see. Things they know about. For it is hard to demand something that doesn’t exist. You see a commercial for another incredible Apple product and you want it. Thanks to some great advertising that explained why you must have it. In other words, when you give money to people all they will do is buy things they’ve always wanted. Things that already exist. Old stuff. It’s sort of the chicken and the egg thing. Which came first? Wanting something? Or the thing that people want?

Raising taxes on Apple to create a more egalitarian society by redistributing their wealth will let people buy more of the old stuff. But it won’t help Apple create more new things to bring to market. Things we don’t even know about yet. If we tax them so much that it leaves little left for them to invest in research and development how are they going to develop new things? Things we don’t even know about yet? Things that we will learn that we must have? Once upon a time no one was asking for portable cassette players. Then Sony came out with the Walkman. And everyone had to have one. Once upon a time there were no MP3 players. No smartphones. No tablet computers. Now people must have these things. After their manufacturers told us why we must have them. Today people wait anxiously for the next Apple release to learn what the next thing is that they must have.

Say’s Law states that Supply Creates Demand

Supply leads demand. We can’t ask for the unknown. We can only ask for what the market has shown us. Which is why Keynesian economics doesn’t work. Because focusing on demand doesn’t work. Giving people money to spend doesn’t stimulate creativity in the market place. Because that money was taxed out of the market place. Reducing profits. Leaving less for businesses to invest into research and development. And reducing their incentive to take big risks to bring the next big thing to market. Like a phone you can talk to and ask questions. Again something no one was demanding. But now it’s something everyone wants.

Jean-Baptiste Say (1767–1832) was a French economist. Another brilliant French mind that contributed to the Enlightenment. And helped advance Western Civilization. He observed how supply led demand. Understood production was key in the economy. He knew to create economic activity you had to focus on the producers. Not the consumers. Because if we encourage brilliant minds to bring brilliant things to market the demand will follow. As history has shown. And continues to show. Every time a high-tech company brings something new to market that they have to explain to us before we realize we must have it. Or said in another way, supply creates demand. A little law of economics that we call Say’s law.

If Keynesian economics worked no one would have to have a job. The government could print money for everyone. And the people could take their government dollars and consume whatever was in the market place. Which, of course, would be pretty sparse if no one worked. If there were no Steve Jobs out there thinking of brilliant things to bring to market. Because supply creates demand. Demand doesn’t create supply. For fists full of money won’t stimulate any economic activity if there is nothing to buy. So using Keynesian stimulus as a cure for a recession is about as effective as someone’s homemade cure for the common cold. You take the homemade concoction and in a week or two it cures you. Of course, the cold just ran its course. Which is how recessions end. After they run their course. Which can be a short course if there isn’t too much Keynesian intervention.

Week in Review

Our public schools are teaching our children that capitalism is evil and unfair. That government is needed to prevent business owners from making too much profit at the people’s expense. Our public schools teach our kids this because the left controls our public schools. And the left hates capitalism. They would love to replace capitalism with socialism. An egalitarian system that puts people before profits. Because putting people before profits is the only way to truly increase the quality of life. Unless you actually live in a place where they put people before profits (see NKorean farmers planting rice with profits in mind by AP posted 5/31/2013 on Yahoo! News).

Farmers say they have begun working under the new policies, which are designed to boost production by giving managers and workers financial incentives. Foreign analysts say the moves to spur North Korea’s moribund economy suggest Pyongyang is taking cues from Beijing on how to incorporate free market ideas within its rigid socialist system…

Impoverished North Korea suffers chronic food and power shortages and has not released economic data for decades. South Korea’s central bank estimates the North’s gross national income, an indicator of the average standard of living, was $1,250 per person in 2011 compared with $23,400 in South Korea.

In the past, the North Korean state set workers’ salaries. Under new measures announced April 1, the managers of farms, factories and other enterprises have been given leeway to set salaries and offer raises to workers who help drive up production…

Beijing dismantled its centrally planned economy slowly. In the 1970s, it began allowing farmers to keep more of their harvests, giving them an incentive to grow more to sell on newly permitted free markets. Food production soared.

In the mid-’80s, the government gave state enterprises the authority to link bonuses and salaries to better performance. Those changes were mostly aimed at managers, but they cracked a communist-era preference for egalitarianism.

New rules in the early 1990s gave state enterprises full flexibility to set wages, widening the use of performance incentives. In that decade, China truly broke away from its centralized “iron rice bowl” system of guaranteed employment and state-set incomes…

At the Tongbong farm in the eastern city of Hamhung, farmers are in the midst of a busy rice planting season after a long, cold winter.

A long, cold winter? Guess there’s no global warming in North Korea.

North Korea’s “rigid socialist system” has impoverished and starved her people. As well as left them in the dark as they don’t have the energy to light up the night. This is egalitarianism. Everyone’s life is equally miserable. This is what socialism gets you. Countries like North Korea, Cuba, the former Soviet Union and China under Mao. Countries notable for their abject poverty. And occasional famine. This is what the left wants America to be. Egalitarian. Where we put people before profits. Where no one has any incentive to do anything. Because working harder than the next guy doesn’t improve your lot in life. So you don’t work harder. You do the minimum. Because why work harder when the outcome is always the same? Misery.

No doubt the American left disapproves of North Korea’s introduction of market forces. And the profit incentive. For it puts profits before people. They’d rather see another layer of bureaucracy. And another 5-year plan. Where brilliant government elites think brilliantly to solve the nation’s problems. Instead of leaving it to the chaos of the free markets. For what did the chaos of the free markets ever do for the people? Other than give them an obesity problem while socialism gives her people famine. Free markets give her people smartphones and the Internet. While Socialism can’t even light up the night. And free markets give her people peace and happiness. While socialism gives her people fear and intimidation.

Of course, the American left doesn’t have a problem giving fear and intimidation to some people. As the IRS persecution of conservatives shows. Which is perhaps why the American left admires socialism so much. Why they insist that we put people before profits. Because when we do we move closer to a police state like they have in North Korea. Something the American left no doubt would like. For it would make it easier for them to persecute their political enemies.

Week in Review

Obamacare will transform American health care into a more top-down national health care system. Because the American left always wanted national health care. For the power over the economy it will give them. Not so much for the quality of health care. For the quality of national health care has not been historically as good as the quality of private health care. But the left doesn’t care. Because it’s not about the quality of health care. It’s about having power over one-sixth of the U.S. economy.

But they tell us it’s about providing high-quality health care to everyone. Not just for the rich people who can afford it. Which they can do if they take out the profit incentive from the health care equation. For that’s what is driving up health care costs. Greedy doctors and hospitals. Who are profiting on sick people. Which is just immoral to those on the left. No. The only way to fix health care is by removing the profit incentive from the health care equation. Like they’ve done in Sweden. The model of socialism the left so wants to see in the United States (see A hospital case posted 5/18/2013 on The Economist).

SAINT GORAN’S hospital is one of the glories of the Swedish welfare state. It is also a laboratory for applying business principles to the public sector. The hospital is run by a private company, Capio, which in turn is run by a consortium of private-equity funds, including Nordic Capital and Apax Partners. The doctors and nurses are Capio employees, answerable to a boss and a board…

Welcome to health care in post-ideological Sweden. From the patient’s point of view, St Goran’s is no different from any other public hospital. Treatment is free, after a nominal charge which is universal in Sweden…

Staff used to waste precious time looking for defibrillator machines and the like. Then someone suggested marking a spot on the floor with yellow tape and insisting that the machines were always kept there…

St Goran’s is the medical equivalent of a budget airline. There are four to six patients to a room. The decor is institutional. Everything is done to “maximise throughput”. The aim is to give taxpayers value for money. Hospitals should not be in the hotel business, the argument goes…

Spreading efficiency will not be easy, however. Europeans instinctively recoil from private companies making money from health care. British placards protest against modest reforms with pictures of fat cats helping the health minister to disembowel a patient labelled “NHS” (National Health Service). Even in Sweden, the mood has grown more hostile since some private-equity companies were embroiled in scandals at nursing homes…

Private health-care companies have several advantages over public organisations. They have more incentive to make services more efficient, since they typically keep some of the savings. They are better at persuading their employees to adopt new ideas. And they are better at spreading new ideas across borders. Europe should be proud of its public-health services. But if it wants them still to be affordable in the future, it should allow more private companies into the mix.

Hmmm. The model socialism that the left so admires is using the profit incentive to fix their national health care. Which means it must have been broken. Just to show the differences in the way bureaucrats and ‘for profit’ people think consider the tape ‘X’ on the floor to mark the spot where a defibrillator should be stored. The centralized authority couldn’t make that happen. The top-down bureaucracy couldn’t figure a way to make people spend less time looking for a defibrillator. Just something else to look forward to as Obamacare begins to reorganize American health care from the top down.

Maximizing throughput? That’s a business term. An alien concept to those in government. And to their friends in labor unions. Which will descend on the health care system under Obamacare. Who will represent health care workers. Not patients. And their answer to everything will be more people working fewer hours. Which will increase the cost of health care. Just as it increased costs in American manufacturing. Chasing it out of the country. So there will be no maximizing throughput under a government/union controlled health care system. Just more of what the Swedes are trying to get away from by reintroducing the profit incentive into the health care equation.

Week in Review

Kids coming out of American schools learn that capitalism is unfair. And that greedy businesses will put their customers at great risk to make a buck. For capitalism puts profits before people. Which is why we need a government with expanding regulatory powers. For government puts people before profits. Like they do in China. A favorite of those on the left who urge more government intervention into the private sector economy. Like they do in China. Where they have a booming economy thanks to wise government bureaucrats. And safe and happy people because the government prevents those nasty profit-seeking businesses from ever harming a soul (see China’s Parents Crave Illegally Imported Baby Formula by Liza Lin and Julie Cruz posted 5/2/2013 on Bloomberg Businessweek).

For Hong Kong customs agents, baby formula is the new heroin. On March 1 a law went into effect limiting the amount of powdered milk travelers can carry out of Hong Kong to two 2-pound cans each. Since then, more people have been arrested for smuggling baby formula than were caught all of last year with heroin and cocaine…

Many Chinese parents are desperate to get their hands on foreign-made baby formula after numerous food safety scandals in recent years. In 2008 at least 22 Chinese companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. Six babies died as a result. In 2011, China’s largest milk producer, China Mengniu Dairy, said in a statement that moldy cattle feed led to excessive toxin levels in its milk. Last year another large milk producer, Inner Mongolia Yili Industrial Group, recalled formula tainted with mercury. “Chinese consumers are so frightened and so sensitive to safety issues with milk powder that they are willing to pay a higher premium than consumers anywhere else,” says James Roy, a Shanghai-based senior analyst at China Market Research Group.

That willingness to pay has led to baby formula shortages in Hong Kong, where food safety standards are higher. The surge in Chinese demand has even hit foreign markets, where baby formula is often cheaper than in China. Over the past year, stores in Germany, the U.K., and New Zealand have put limits on all bulk purchases of formula, such as Danone’s (BN) Aptamil and Mead Johnson Nutrition’s (MJN) Enfamil.

Hong Kong favors free market capitalism. While China prefers state capitalism. Where the state regulates the private sector economy with the heavy hand of the government. So, in Hong Kong you have the economic system that American schools teach students is bad. Because they put profits before people. While China has the economic system that the American schools teach is good. Because they put people before profits. And which one is better? Well, food safety standards are higher in High Kong than in China. Despite putting profits before people.

Or you could say that food safety standards are higher in High Kong BECAUSE they put profits before people. Because if babies start dying after drinking a company’s baby formula people will exercise their free choice and buy another company’s baby formula. A very strong incentive NOT to kill babies. Because it would be bad for business. And bad for profits.

Whereas in the ‘people before profits’ state capitalism of China if a company kills babies with its baby formula it’s no big deal. For the state will just force their people to buy the tainted baby formula by putting import restrictions on safe baby formula. So there is no incentive NOT to kill babies in China.

So which system is better? If you base it on which protects their people better you have to go with Hong Kong. For they’re not killing babies with their baby formula. While the Chinese are. Which is a lesson the American schools should be teaching. Instead of the anti-capitalistic curriculum written by those Sixties’ radicals who actually preferred China the way it was under Chairman Mao. Before state capitalism. A time of true communist collectivism. Where tainted baby formula was the least of their problems. As they were busy setting famine records with their agricultural policies of forced collectivism. Where they really put people before profits. For there were no profits. So things are better in China today. For they do allow some profits. But things aren’t as good as they are in Hong Kong. Where they allow all the profit you can make. And by putting profits before people the people come out ahead. As do their babies.

Economics 101

It takes a Lot of Time to Design, Develop and Bring to Market a Radical New Aircraft

The number one cost airlines have is fuel. So anything that can reduce fuel consumption can cut an airline’s costs. Aircraft manufacturers are aware of this. And want to incorporate new fuel-saving technology into their aircraft. Because that’s what airlines want. And if you can give the airlines what they want they will buy your aircraft. But sometimes new technology can be a little temperamental. Everything doesn’t work as expected. And sometimes problems that come up can take a long time to engineer through. Like it did for the Boeing 787 Dream liner.

Boeing did everything they could think of to squeeze every last ounce of weight from the 787. One thing they did is well known. Thanks to a problem with it that caused the grounding of the entire 787 fleet. The lithium-ion battery. But that’s not the only weight-saving innovation of the 787. They added Dual Electronic Flight Bags in the cockpit. So pilots don’t have to bring bulky and heavy books aboard. They went from conventional pneumatic architecture to more-electric architecture. Eliminating the engine bleed air system and associated pneumatic system components. Reducing weight and improving efficiency. Which reduced fuel consumption. They used simple trailing edge flaps. Not slotted flaps. Letting them use smaller flap track fairings (those canoe-shaped things underneath the trailing edge of the wings that operated the flaps). Reducing drag. And fuel consumption. They used bigger engines with higher bypass ratios (the amount of air pulled into the fan disk but NOT used for combustion). Increasing engine efficiency. Reducing fuel consumption. The use of composite materials decreased weight. And the use of one-piece barrel sections eliminated additional joints, fasteners and splice plates. Reducing weight. And fuel consumption.

These and other innovations result in a fuel savings of 20% over similarly sized aircraft. This is huge. Which is why airlines are ordering this airplane. But such a radical change in aircraft design comes with a lot of risks. As the problem with the lithium-ion battery has shown. And it takes a lot of time to design, develop and bring to market a new aircraft. Especially one that is radically different from other airplanes. So the decision to put the aircraft company on this course was a very risky decision. And one that took a lot of guts. Because so many things can go wrong. Leading to cost overruns. Which can delay promised delivery dates. And Boeing had their share of those bringing the 787 to market. Which they have worked through. Will it be worth it? As long as airlines want to save on fuel costs, yes. And no problems arise that they can’t overcome.

Stock Options get Risk-Averse and Cautious CEOs to be Bold and Take Risks

These are big decisions. Decisions that lead to great successes. Or great failures. Some so bad that they can bankrupt a company. Someone has to be responsible for these decisions. That one person sitting at the top of the corporation. The CEO. It is the CEO who has the ultimate say on the direction of the corporation. And with this one decision all the resources of the corporation are marshaled together to take the corporation in this new direction. Incurring great costs that will be on the books for years. Making it hard to change course until these great investments pay off. If they pay off.

These are the things CEOs have to deal with. Not just at Boeing. But throughout corporate America. CEOs have to make these singular decisions that can have consequences for years to come. Where it may take years to see if that one decision actually pays off. There are few CEOs in the labor force. So few can imagine the stress these people work under. And in that pool of CEOs there are only a few that have the Midas touch. Who can consistently take great risks while making all the right decisions. Board members desperately want these CEOs. Offering very generous compensation packages to lure them in. And to keep them once they have them. This crème de la crème of CEOs may make the big bucks. But in exchange for that fat paycheck they do something few others can. They make shareholders rich. And they love making these owners rich. For they love the thrill of the job. Relishing that high-stress environment. Where every little decision has great consequences. Thriving under the kind of pressure that would leave most others whimpering in their beds. Curled up in the fetal position. In a pool of their own tears.

But not every corporation can get one of the crème de la crème. They may have a great CEO. But one that suffers from a major CEO character flaw. Being averse to taking big risks. Who instead wants to be a little more conservative. And a little more cautious. Shareholders don’t like overly cautious CEOs. Because the people getting rich are doing it by breaking away from the pack. By doing something different. Abandoning convention. Trying something bold. And new. Bringing something brand new to market that no one knows anything about. But once they learn about it they can’t live without it. This is what shareholders want. Not cautious and conservative. So to light a fire under these CEOs they came up with a new way to compensate them. To appeal to their greed. By letting them get rich if they can make that next great thing that sends the stock price soaring. And the key to their greed is the stock option.

Stock Options provide a Powerful Incentive to bring Great New Things to Market

The CEO that creates the next big thing everyone will want to buy will send sales revenue soaring. And with great sales revenue comes great profits. Increasing the value of the company. Which, in turn, makes the stock price soar. This is what shareholders want. A soaring stock price. So to encourage the CEO to give them what they want they tie the CEO’s interest to their interests. By giving the CEO stock options. Making the sky the limit. For the more the CEO increases the stock price the greater the CEO’s compensation. Thus encouraging the CEO to try something bold and new.

A stock option is a right to buy a share of stock at a fixed price in the future. Say the current stock price is $70/share. The board of directors gives the CEO the option to buy, say, 500,000 shares of stock at $80/share up until some date in the future. Creating a strong incentive for the CEO to raise the stock price. The greater the CEO raises the price above $80 the greater his or her compensation. Let’s say the CEO was bold and took a great risk. And it pays off. Sending the stock price soaring to $110/share. When the CEO exercises those options he or she will buy 500,000 shares of stock from the company at $80/share. The company gets $40 million in new capital to help finance further growth. And the CEO will sell those 500,000 shares at the current market price of $110/share. Pocketing $15 million. And the shareholders, of course, get what they want. A higher stock price. Everyone wins.

Now let’s say that nothing spectacular happens. And the stock price only rises to $75/share. Because it’s below the ‘strike price’ the CEO will let these options expire. The CEO profits nothing from these options. But doesn’t lose anything either. But what happens when the stock price falls because of that bold, new direction? Causing the corporation to lose value. As well as the shareholders. But the CEO? Again, the CEO will let those options expire. And will lose no money. Which is one of the benefits of stock options. It got those risk-averse and cautious CEOs to take those big risks that got shareholders rich. As there is no downside risk for the CEO. Which is both good and bad. On the one hand it encourages risk taking. But on the other it encourages risk-taking. Some CEOs will take excessive risks as they have nothing to lose. Some will even cook the books to boost the stock price so they can exercise those options. So it’s not a perfect system. But they do provide a powerful incentive to bring great new things to market. Which is what shareholders want. And will take great risks themselves to get it.

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A lot of people think that if government doesn’t regulate businesses they will wantonly put their customers at risk. Even killing them with dangerous products or unsafe conditions. People in government believe this with every fiber of their body. So they can keep growing the size of government. Creating ever more government jobs. And they try to scare people whenever anyone talks about cutting the funding of government. Saying people will die from these ruthless businesses putting profits before people if they are not there to regulate them. Which is preposterous.

The SeaWorld’s IPO shows that if you harm your customers you will lose your customers. And if you lose your customers you will make fewer profits. Which means the profit incentive makes customers safe. Because a business knows the more customers they have the more profits they can make. So they have a financial incentive not to hurt their customers. Something they didn’t have in the state-owned business of the former Soviet Union.

There was no fear of losing customers in the former Soviet Union if they killed their customers with faulty products. Because there was no competition. Just layer upon layer of bureaucrats. And no one sued the ruling communists in the Soviet Union. They may sacrifice the occasional bureaucrat if the outside world was aware of some incident. But it was just another tragedy in the Soviet Union and life went on. The people just had to put up with substandard quality. And accept the occasional deaths.

Why? Because in socialism where they put people before profits they actually put the state before the people. Where bureaucrats protect themselves. And other bureaucrats. Because their state jobs are all that matter. While in a country where there is capitalism the profit incentive puts people before the state. Because any person felt mistreated by a business could simply take their business elsewhere. Which forces businesses to bend over backward to please their customers. Something you just don’t experience while renewing your driver’s license.